Obama's re-election and a path to a tax code revamp

U.S. President Barack Obama and his family walk onstage during his election night victory rally in Chicago, November 6, 2012. (L-R) Daughters Malia, Sasha, First lady Michelle Obama and the President.

Reuters/Jason Reed

WASHINGTON Now that President Barack Obama has clinched a second term, will he embrace one of the most politically vexing tasks on his to-do list - streamlining the mind-numbing U.S. tax code?

Backers of a top-to-bottom overhaul hope so, with momentum building for such a feat, last accomplished under President Ronald Reagan in 1986. It will be Obama's choice, those in both parties agree, to make a bold proposal and use his bully pulpit to push it through.

"You need presidential leadership," said Michael Mundaca, who was Obama's assistant treasury secretary for tax before returning to Ernst & Young. "You need the power of the Treasury tax policy and White House economic team and the IRS (tax-collecting Internal Revenue Service) to do something this massive."

Obama, who defeated Republican Mitt Romney for re-election, is among those in both parties who say the tax system is overly complex and stifles growth.

Raising new revenue will be a major challenge of Obama's second term, with a deficit topping $1 trillion. Many say a tax code rewrite is a place to get it but the battle will be uphill, with interests from homeowners to union workers to insurance companies all fighting to keep their benefits.

Not to mention a Republican-controlled U.S. House of Representatives, home to the tax-writing Ways and Means Committee. Many Republicans dispute that new revenue is needed at all.

Besides the deficit push, congressional hearings by the dozens and circulation of reform blueprints have prompted some analysts to predict the odds are the best in decades for a major revamp in the next few years.

The president's critics argue that he has failed to take the lead, for example, by not endorsing the Simpson-Bowles deficit panel's recommendations, which included options for major changes.

Jared Bernstein, a former Obama economic adviser, points to Obama's budget proposals of recent years. Obama backed trimming tax deductions to a maximum of 28 percent of income for the wealthy and sought changes to the tax treatment of debt as one way to pay for a cut in the corporate tax rate.

"He actually has a fairly extensive paper trail on tax reform," Bernstein said before Tuesday's elections.

The tax code was last significantly scrubbed clean in 1986, with a significant push by Reagan in his second term. Reagan directed his Treasury Department to prepare a proposal but cleverly pursued it only after he was safely re-elected.

Skeptics and some Republicans caution that Obama will face the same predicament that has dogged him for the last two years: Republicans kept control of the U.S. House of Representatives and the Senate remains closely divided but controlled by Democrats, according to late projections.

Regardless, a 1986-like revamp will be an uphill climb, analysts agree.